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Sun 30 Apr 2017 02:25 PM

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The GCC is behind schedule on VAT: Kuwaiti finance minister

Region still lacks solid infrastructure for implementing value added tax

The GCC is behind schedule on VAT: Kuwaiti finance minister
“Kuwait has signed, like the other GCC states, the agreement to implement VAT in 2018. (Yasser al-Zayyat/AFP/Getty Images)

The GCC has more work to do to build an effective system for implementing value added tax (VAT), according to Kuwait’s finance and deputy prime minister Anas Khaled Al Saleh.

The Gulf region has pledged to introduce VAT at an initial rate of 5 percent from 2018, as part of ongoing plans to diversify revenues away from oil dependence.

However, Al Saleh admitted that the region was “behind” on the proposed timeline because it has always been tax-free and lacks a ready infrastructure for implementing and collecting the tax.

He told Arabian Business: “Kuwait has signed, like the other GCC states, the agreement to implement VAT in 2018.

“I believe that in Kuwait we are still behind because simply we are, like other GCC states, simply a tax-free environment and have no infrastructure for implementing an efficient tax system.

“So we are now in the process of engaging with consultancies, and other countries, to help us build up a strong infrastructure for tax programmes that we would implement.”

He conceded VAT was a "nitty-gritty" policy but one that – along with other fiscal reforms – could help GCC states shrink budget shortfalls incurred as a result of persistently low oil prices.

However, as far as Kuwait is concerned, he warned against placing too much significance on the benefits of the tax. “I wouldn’t lean on it too much,” he said.

Al Saleh is preparing to publish a revised fiscal reform strategy to reduce Kuwait’s forecast $25.9bn budget shortfall for 2017-18 (the country fell into deficit for the first time in 16 years in 2015).

He explained that his main focus is top-down government rationalisation, such as cutting departmental expenditure. “There is so much tightening we can do within the system that would pay us more [than VAT].

“The procedures we are issuing in the new plan include more efficient tightening that will not hurt our tummies too much, but hopefully make sure we do not overeat.”

To read an exclusive interview with Anas Al Saleh, click here.

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